By Aaron Squyres, Esq,

Wilson & Associates, PLLC*

USFN Member (AR, MS, TN)

               On August 28, 2023, the Tennessee Court of Appeals issued an opinion of first impression in Clarence Mitchell, et al. vs. Rushmore Loan Management Services, et al W2022-00621-COA-R3-CV, which significantly impacts borrower litigation against mortgage servicers in Tennessee.  In summary, the court found that a borrower cannot prevail on a breach of contract claim against a mortgage servicer if there is no privity of contract between a borrower and a mortgage servicer.

               The facts surrounding the Mitchell foreclosure are commonplace. They fell behind on their mortgage indebtedness, received a Notice of Default and Right to Cure from their servicer, and were offered a series of loss mitigation requests, all of which were denied.  When the servicer initiated foreclosure proceedings, the Mitchells filed suit against Select Portfolio Services (the prior servicer), Rushmore (the current servicer), U.S. Bank as the Trustee of the securitized trust that owned the Mitchell loan, and the law firm conducting the foreclosure. The law firm was subsequently dismissed as a party.

               Motions for Summary Judgment were filed by Select Portfolio Services (SPS), Rushmore, and U.S. Bank. The trial court granted summary judgment to U.S. Bank and initially denied summary judgment to SPS and Rushmore. SPS and Rushmore then renewed their Motions for Summary Judgment. The Mitchells did not contest the Rushmore Motion, and it was granted, leaving SPS as the remaining party.

               The trial court ultimately granted the SPS Motion for Summary Judgment. It declined to grant summary judgment on the first argument, i.e. SPS cannot be liable for breach of contract as SPS was not a party or a signatory to the Deed of Trust, and therefore was never in privity of contract with the Mitchells. The trial court did grant summary judgment on the second claim, i.e., the plaintiffs failed to produce evidence that SPS had breached any term of the contract. The Mitchells appealed.

               The Tennessee Court of Appeals acknowledged the Mitchells’ argument that no Tennessee state appellate court had addressed the question of whether a mortgage servicer can be held liable for breach of contract in the absence of privity, but it correctly noted that multiple courts in various jurisdictions had considered that precise question. It found that courts have consistently found that there is no contractual privity between a borrower and loan servicer, and therefore it ruled that the Mitchells cannot prevail against SPS on a breach of contract claim and affirmed the trial court.

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USFNews - Nov. 15, 2023

* Denotes firm is a 2023 USFN Award of Excellence recipient